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NATURAL CAPITALISM

YOU HAVE co-authored this new book called Natural Capitalism. What is in it?

This book describes what capitalism could be like if it behaved as if natural capital were properly valued. Natural capital is the living world that provides resources and ecosystem services, which we can neither replace nor live without. Ecosystem services are extremely valuable, but they’re not on anyone’s balance sheet, and they get inadvertently liquidated in pursuit of resources whose market value is recognized. But rather than spending decades arguing about how much money ecosystem services are worth, I think it makes more sense to behave as if we were properly valuing them, through operational principles that are profitable even now when natural capital is valued at zero. Our book explores, through hundreds of examples, four such principles that strongly reinforce each other.

When one thinks of the word “Capitalism” in the classic language, one means land, labour and capital. “Capital” is mostly understood as financial capital. So, you are using the word, but changing the meaning.

I’m trying to restore and enrich the meaning. Textbook capitalism is about the productive use and reinvestment of the capital that permits wealth creation. Lately “capital” has come to mean just financial and manufactured capital. The world has moved a long way away from Ricardian economics in which land was the basic value. But, in this book, we’re returning to it, with the new twist that land (in the wider sense of the natural world) is not only where you can grow crops; it’s what regulates atmosphere, climate, watersheds, fertility and all the other services that make life
and therefore economic activity possible.

If you think human ingenuity can replace natural capital, just reflect on the way that the $200-million Biosphere 2 (the vast dome in the Arizona desert) proved unable in 1992 to provide adequate air, water and food for eight people, the number we add to the planet every three seconds. In contrast, Biosphere 1 (our planet) provides those services for six billion of us every day for free, and we haven’t the foggiest idea how to do it. (I once met an economist who believed that everything was fungible for money, so I suggested he enclose himself in a large bell-jar with as much money as he wanted and see how long he lasted. He demurred.)

Are we leaving people out of account too?

Yes. We must also recognize the importance of “human capital”, not just in the sense of educated minds and skilled hands, but also as the unmonetized social processes that make us human and make life worthwhile. We must recognize those aspects which make us more than cogs in a machine; which produce community; which create a loving, caring, sharing, family; which develop beauty, honour, integrity and creativity. These are attributes of social systems, as well as of individuals. They require support and reinvestment if they’re going to keep on relieving suffering and producing happier human beings. If we treat what are tellingly called “human resources” as if they were simply an ore to be mined out of the ground, we will deplete society’s ability to support the wider purposes of being human. Economies are supposed to serve human ends — not the other way round. We forget at our peril that markets make a good servant, a bad master and a worse religion.

Today we have a temporary aberration called “industrial capitalism” which is inadvertently liquidating its two most important sources of capital — the natural world and properly functioning societies. No sensible capitalist would do that. The textbooks say that capitalism reinvests its profits to enhance its stock of productive capital. Yet through accidents of history, we’ve ended up counting on the books some forms of capital and not others. What we are counting is very much smaller than what we are not counting.

Some people have tried to put a dollar value on natural services. What do you think of that?

It’s instructive. Costanza came up with quite conservative estimates, as did Gretchen Daley, that ecosystem services are probably worth at least as much as gross world product. But that’s an artificial figure since there’s no market for them, we don’t know how to produce them (except a very few like pollination — but hand-pollinating the world would quickly become tedious) and we can’t live without them. Their true value is therefore effectively infinite. But, happily, we don’t need to decide exactly what they’re worth.

We can behave as if we were properly valuing them; and we can thereby make money, even now when they’re valued at zero, by following the four practical principles of natural capitalism.

The first and most obvious principle is to use resources with radically greater productivity; to get ten to a hundred times as much work out of them through better technologies that provide the same or better services with more brains but less money. This substitution can dramatically reduce the half-trillion-ton-a-year flow of resources, from depletion to pollution, that is at the root of the degradation of natural systems.

What exactly is getting used more productively?

Energy, water, materials, topsoil and so on. New methods and designs often enable you to “tunnel through the cost barrier” and make very large resource savings. It is less costly, therefore more profitable, than small or no savings. Resource productivity can often achieve not diminishing but expanding returns. That’s a surprise, but it’s now well demonstrated in a wide range of technical systems and economic sectors.

The logic of increasing resource productivity is familiar because it’s the same logic that led the first Industrial Revolution to make people a hundred times more productive. Economics teaches that you should economize on your scarcest resource because that’s what limits progress. In those days, some 230 years ago, the relative scarcity of people was limiting progress in exploiting seemingly boundless nature. Today we have the opposite pattern of scarcity: we have abundant people and scarce nature. So it now makes sense to substitute abundant people for scarce nature — not the reverse, as we still seem prone to doing.

What is the second principle by which natural capitalism reduces pressure on natural systems?

It is to redesign production on biological lines with closed loops, no waste, and no toxicity. It is to design out anything that shouldn’t be there, anything that isn’t benign and valuable, any unsaleable production. This will yield better products at lower cost. It will transform everything that we produce into either a natural nutrient that goes to compost or a “technical nutrient” that goes back to remanufacturing.

When you redesign production on biological principles — “bio-logic”, if you like — you rely for raw materials less on what is dug up and more on what is grown. We should also be mimicking nature’s very effective and life-friendly way of making things. Janine Benyus’s book Biomimicry gives some great examples. That tree we’re seeing outside the window turns sunlight, air, soil and water into a sugar called cellulose, as strong as nylon but several-fold lighter, and then it embeds the cellulose into a natural composite called wood, which is stiffer and stronger than steel, aluminium alloy or concrete.

Yet the tree doesn’t require smelters, blast furnaces or cement kilns. It works at ambient temperature in an elegantly frugal and beautiful way. If we looked carefully round this room, too, we could probably find a spider making crickets and flies into silk that is as strong as the polyaramid or Kevlar fibre that goes into bullet-proof vests. Yet, DuPont needs vats of boiling sulphuric acid and high-pressure extruders to make Kevlar. A spider does without all that. If we were as smart as spiders, we would be very good at making ultra-strong fibre without this primitive “heat, beat and treat” technology.

What is the third principle of natural capitalism?

It is to change the business model by switching from selling goods to delivering a continuous flow of service and value. And this should be done in a relationship that rewards both the provider and the customer for resource-saving and loop-closing. It’s one of those radically simple ideas that, once you see it, makes a great deal of sense.

For example, Ray Anderson, Chairman of Interface Corporation, realized that people don’t want to own a carpet in their office; they just want to walk on it and look at it. So he started to lease a floor-covering service. His company owns what’s on your floor. They’re responsible for keeping it always fresh by replacing one-square-metre carpet tiles in the worn spots, which are only one-fifth of the whole carpet area. Interface can thus provide a better service with lower cost, higher profit, and more employment. Now the firm has designed a new product called Solenium that uses 35% less material per square metre and lasts for twice as long. It is better in all respects for the customer, costs less to produce, has nothing toxic in it and can be completely remanufactured into an identical product. So when you combine that seven-fold reduction in material needs within the five-fold material-saving from the service leaser’s replacing only the worn bits, you’ve got a 97% reduction in the flow of materials to maintain a superior floor-covering service at lower cost.

Such a business model as this is going to be very difficult to compete with. By switching to a service model and systematically wringing out waste even before the new product was released, Interface had doubled its revenue, trebled its profits and nearly doubled its employment. Its goal is to take nothing from the Earth and to put nothing harmful back into the environment. The new product cuts off the flow to the rubbish-tip by remanufacturing, and can even cut off the initial flow from the oil well by making the Solenium from a renewable carbohydrate. All that waste turns into profit. Interface does very well by doing good.

Other firms are excited and envious that Interface got there first. In one business after another we see the service-leasing model taking over. But remember, what’s important here is not so much the form of the transaction — leasing a service instead of selling a product — but that the provider of the service and the customer for the service both get rewarded for doing more and better with less.

For example, if you lease a “dissolving service” from Dow and they then repurify the solvent through more trips, their costs go down, their profits go up and they can also charge you less to get more market share. If they figure out a better way to degrease your parts in your factory, like not putting the grease on them in the first place, so that they need less or no solvent to yield clean parts, that’s even better.

Similarly, if Carrier is leasing you a comfort service which makes its air-conditioners more efficient or more durable, they make more profit by providing better service at lower cost. If they then team up with other firms that can fix your building so that it needs little or no air-conditioning to provide better comfort, that’s even better, because what you want is better comfort at lower cost. If they don’t meet that need, their competitors will and they’re out of the air-conditioning business. This way they’re evolving toward continuously meeting your shifting value needs in the best way at the least cost. That’s exactly where any business ought to be — shifting saved resources from a reduced revenue to a reduced cost. James Womack calls this concept, the “Solutions Economy”.

What’s the fourth element of natural capitalism?

It’s reinvesting in restoring, sustaining and expanding the stock of natural capital, as any prudent capitalist would do. That’s the easiest step because God does the production; we just need to get out of the way and allow life to flourish wherever it can. As more people choose fewer resources, this creates increasing business value.

Many ranchers in the American West are finding that new techniques of grazing management can yield a much richer and more diverse grass community and turn the range from desert back to real fertility. They graze more animals but in a different way that mimics the way that grass and grazers have historically coevolved.

We have major companies in the midwestern United States that are turning the grass outside their headquarters buildings into prairie, which costs so much less to install and maintain than commercial grass that a contractor will happily do the replacement for just a share of the saved maintenance costs with no up-front payment. The conversion creates an enormously richer and more diverse biotic community full of beautiful flowers that people come from all over the country to see. It requires little maintenance and keeps itself healthy without being fed water, fertilizer or anything else, because it’s what’s designed to grow there.

This is why we are excited about Wes Jackson’s work at the Land Institute. He is turning Great Plains agriculture back into something that looks very like a prairie. It’s a perennial polyculture that needs no ploughing, feeding or spraying. You sit there and watch it grow and once in a while you harvest it, either mechanically or with ungulates, to taste. It’s at least as productive as the very input-intensive hybrid cereals — and so it should be, because during 3.8 billion years of selection and experimentation whatever didn’t work was recalled by the Manufacturer! The prairie is the most efficient way of durably using the sunlight available in that place. If there were a better way to do it, it would have been there already.

These four principles seem to be very wise and very practical, but you talk about making money and saving the Earth at the same time. Do you think this very pragmatic approach of natural capitalism can lead us far enough?

Well, ultimately not far enough if greed is truly unlimited — although Factor 10 or 100 resource savings can cope with a great deal of greed. But I think along the way, as we treat nature as model and mentor, and not as a nuisance to be evaded or manipulated, we will certainly acquire much more reverence for life than we seem to be showing right now. And along the way we will learn the importance of meeting non-material needs by non-material means. Then we will also be asking how much is enough.

What is called the entertainment industry is hardly a substitute for conviviality or family life or a vibrant community, any more than security guards are a substitute for safety, or insurance for health. People in many societies are opting out and saying, “No, I don’t want to be part of this outward affluence and inner poverty.” They are saying: “I would rather build my life round things that really count, not those that are merely countable.” What happens to conventionally framed economic growth if people start buying only what they actually need, and industry produces only what is wanted? Smart companies are already asking those questions and using the concept of natural capital to frame much more compelling value propositions. There the customer defines the value — not the advertising agency or the image-maker.

We’re even starting to find a few very interesting models of businesses that make money by unselling what one might think is their product. It’s commonplace of course for electricity and water companies to sell negawatts and negalitres — that is, to help their customers use electricity and water far more productively so they need less of it to do a given task even better. That works well for both parties because efficient use works better and costs less than production.

What’s less familiar is to see, for example, The Body Shop enhancing the self-image of young people so that they’re happy with who they are, even if they don’t wear cosmetics. You might think this firm is in the cosmetics business; yet it doesn’t try to sell to young people a material means of meeting a non-material need of self-esteem, but rather helps them gain the self-esteem without the cosmetics. Then these customers will feel better about the company and may spend money on something they actually do need, which might be, for example, a health product to keep the skin properly moisturized rather than changing its appearance.

I met a woman recently who runs what might be called a toy store. I put it that way because she helps her many repeat customers not to buy toys but rather to learn better ways to play with their children, ways that are fun and educational and inexpensive. This is, of course, what the parents really wanted, rather than addictively buying expensive, faddish, flashy, ephemeral toys as a surrogate for genuine affection and for a deeper family life. So I suppose you could say this entrepreneur is acting as a bit of a family therapist. She does actually sell some things as well; they are of a more educational character. But apparently her shop has several times the sales volume that you would expect for its size, and extremely happy customers, even though she’s following the opposite of the conventional industrial model of toys — not frequent-sale-of-commodity but rather play-facilitation-as-service.

By the time you see a few dozen business cases like these, you start to realize that there’s something very interesting going on. Many business leaders are asking fundamental questions about what business they’re in, why they are doing it and how it can be used as a means of healing human and natural communities. We certainly see that in Rocky Mountain Institute’s Green Development Services. Many real estate developers are redefining the nature of their profession in a more restorative than exploitative fashion. This improves their market and financial performance, because of the same integrated design that gives the projects better resource, environmental and human performance.

So, are you saying that good practice will more or less automatically produce good values?

I don’t think it’s completely automatic, but right livelihood is certainly conducive to more worthy and durable values, and natural capitalism tends towards right livelihood.

And are you also saying that these companies can continue to have economic growth without depletion and pollution?

They can certainly do that, but they may also be developing in a different way. You know, children grow until they become adults; then they stop growing. If they kept on growing physically, they would become something monstrous or possibly cancerous. At some point they stop swelling and start maturing. Communities and businesses need to do the same — developing rather than growing. There is nothing graven in stone that says businesses must always get higher revenue in order to produce more happiness for their customers, satisfaction for their workers, justice for their communities, and profit for their shareholders. What’s quite extraordinary in the emerging natural capitalist companies is not just their financial performance but the level of energy, initiative and enthusiasm that emerges at all levels of the firm as soon as the perceived contradiction is removed between what people do at work and what they want for their kids and communities when they go home. The resulting cultural revolution is a marvel, and a big management challenge to keep up with, but it’s a nice problem to have.

What about saving wildlife and wild places? Because wild places are also a kind of natural capital.

Indeed, and they are the reservoirs of the intact functioning of nature in ways we very dimly understand and which if destroyed are just as irreplaceable as burning the library of Alexandria, only more so, because you’d have to wait for aeons to get back what’s lost. I think the sense of urgency felt by conservation biologists who see the library burning is exactly correct. Many responsible companies are now starting to share that sense of urgency and wanting to make sure that they don’t contribute to the problem. Those that don’t yet have this message are rapidly losing their reputation which is vital to their business success, and I don’t expect many of them to remain in business for long.

Wild places are often correctly said to have a great economic importance but I think they also have a great spiritual and intrinsic importance which we ignore at our peril. As Wendell Berry has said, we hardly know what we are doing when we destroy such areas, because we don’t know what we are undoing. As we start to find out the incredible richness of the living world, we realize more and more how criminal it is to destroy its basic functioning and how much that imperils our own survival. Recent scientific papers — just to pick a mundane example — show that somewhere between about 99% and 99.9% of the organisms in soil that look like bacteria under the microscope can’t be cultured in normal bacterial culture media, and we haven’t the foggiest idea what they are or do. They are simply unknown to science. So topsoil is a vast and expanding mystery; and, if a Martian biologist were to land on the lawn outside, I expect he, she or it might be much more interested in topsoil than in people. The topsoil is by far the most complex ecosystem that we know, and we are almost entirely ignorant of it. Yet without it there’s nothing to eat.

I was educated as a physicist in a very Cartesian world-view. In that mechanistic framework the world behaves rather like a lot of billiard balls. It’s not like that at all. We’re having to relearn that living systems are unimaginably more complex and subtle than that, and often do non-linear and irreversible things. I predict that in the next decade or two there will be a huge gulf between biology and biotechnology. In an odd way, transgenic crops are the last gasp of the old model — a manipulative, mechanistic approach to life. Well, maybe the next-to-last gasp, because with the wrong epistemology, nanotechnology could exhibit the same fatal flaw.

What’s nanotechnology

That’s the emerging science of molecular-scale manipulation. I think there is such a thing as a technology that our species isn’t yet ready to handle wisely. Yet with respect to transgenic crops, thanks in par to the much wiser reaction in Britain and elsewhere in Europe, I think the right questions are belatedly starting to be asked about where this is headed and whether we want to go there. Transgenics is “unnatural capitalism”. Natural capitalism is based on respecting and learning from the natural order of things rather than trying to replace it with human cleverness.

So, it’s more important to learn from nature than manipulate nature?
In fact, in Francis Bacon’s New Atlantis, written around 1614-1617, you’ll find quite a thorough and chilling description of what the technologists have achieved in his wondrous fictional world, whose spokesman says:

“And we make by art, in the same orchards and gardens, trees and flowers, to come earlier or later than their seasons, and to come up and bear more speedily than by their natural course they do. We make them also by art greater much than their nature, and their fruit greater and sweeter, and of differing taste, smell, colour, and figure, than their nature. And many of them we so order as they become of medicinal use. We also have means to make divers plants rise by mixtures of earths without seeds, and likewise to make divers new plants, differing from the vulgar, and to make one tree or plant turn into another. By art likewise we make [animals] . . . greater or taller than their kind is, and contrariwise dwarf them and stay their growth; we make them more fruitful and bearing than their kind is, or contrariwise barren and not generative. Also we make them differ in colour, shape, activities, many ways. We find ways to make mixtures and copulations of divers kinds, which have produced many new kinds, and then not barren, as the general opinion is. Neither do we this by chance, but we know beforehand of what matter and commixture, what kind of those creatures will arise.”

You couldn’t ask for a better prospectus of what the gene-tamperers are trying to do.

Bacon set this up as a desirable goal — “the enlarging of the bounds of Human Empire, to the effecting of all things possible.” It’s the technological version of the old California slogan: “If it feels good, do it.” I think we can find worthier goals than that.

So. Going back to your natural capitalism, do you feel that by your fourth principle of restoring nature, people will naturally be inhibited in pursuing this kind of manipulative technology?

Natural capitalism is based on the way nature actually works, not the way we wish it worked. If we actually followed capitalist principles in the biotechnology game, most of the present investments wouldn’t be made. Firms would have strict legal liability for the consequences of their actions; they would have to label each product so that we could choose whether we wanted to buy it; they wouldn’t be artificially shielded from normal health and safety regulations; they wouldn’t be able to claim safety by reference to unaccountable committees consisting essentially of themselves; they wouldn’t be able to conceal evidence of things not working as advertised; and it would be a much safer and more democratic world. I think we’re going to go in that direction which is why genetically altered crops now trade at a discount and untampered ones at a premium. What we’re going through now is just the struggle over how quickly and in what form to get there. Ultimately I think democracies tend to have the sense not to hand the keys over to anyone else, but it’s a pretty close-run thing whether we’re going to figure this out in time to avoid some grave embarrassments.

At the moment in American economics there seems to be a kind of optimism that the stock-market is doing well, the economy is flourishing and employment is high. Do you reckon, when the economy is doing so well and the market is booming, that people will pay attention to your kind of vision?
Yes, especially so. But let’s first define the premise. You know, there’s always this divergence between something that’s fading away and something else struggling to be born. But certainly there’s reason to question the depth both of America’s current economic success and of her rivals’ economic difficulties. We’re in all likelihood measuring the wrong things, and we’re certainly making daily the mistake of identifying gross domestic product with human well-being, to which it bears almost no relation. In fact, you can make a good case that probably half the gdp is pure waste, spent either to pay for or to remedy the effects of waste that shouldn’t have occurred in the first place. Economists’ attempts to estimate net welfare suggest that Americans are little if any better off now than they were around the early seventies. Their gdp growth went largely to subsidies and remedial costs. That’s why so many people have the sense that they’re running harder to stay in the same place.

I hope at least my fellow citizens will regain some sense of history and perspective. As we saw in the case of Japan, things can change very quickly. As in much of the world, I think consciousness is shifting quite markedly and steadily in a constructive direction. But it’s not all good. We have a great deal of work to do, especially inner work.

What do you mean by inner work?

Well, I referred earlier to outward affluence accompanying inward poverty. I come from a country that is materially overdeveloped and spiritually underdeveloped. Some countries have the opposite conditions, and there’s everything in between. But I’m increasingly sanguine that we may all get out of this mess in one piece. Certainly the world remains a dangerous place and some very bad things are still likely to happen; but I suspect that the search for intelligent life on Earth is likely to turn up something useful. •

Amory Lovins is a Director of Rocky Mountain Institute. He is the co-author with Paul Hawken and Hunter Lovins of Natural Capitalism, published by Earthscan (London) and Little Brown (New York). See Book Reviews pages. Amory will teach at Schumacher College in September 2000. For further information ring 01803 865934.